Top Five Reasons You Can Get an Income Tax Notice

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Receiving an income tax notice can be scary for most people.
From not filing returns to hiding interest income, the reasons can vary for
attracting a notice. Avoid these most common mistakes if you don't want to get
an income tax notice.

1) Not filing income tax returns

According to income tax law, if your gross income (without
any deductions) is above the exempted limit of Rs 2.5 lakh in case of
individuals, Rs 3 lakh for senior citizens (60-80 years of age) and Rs 5 lakh
for super seniors (above 80 years), you are liable to file a tax return. Also,
irrespective of the fact that your employer has deducted the tax at source
(TDS) or not, you have to file an income tax return. Many people also believe
that since they don't have a tax refund to claim, they don't need to file
return. But that's a misconception.

According to Preeti Khurana, chief editor of Cleartax.in,
"If you are a resident Indian and you own a foreign asset or are a signing
authority in a foreign bank account, you have to file an income tax return
irrespective of your income." If you fail to do so, you may get a notice
from the income tax department, she added.

2) TDS errors

If there is mismatch between the TDS deposited by your
employer and the income tax return filed by you, you may get an income tax
notice. You should always check your tax credit statement (Form 26AS) online
before filing the return. If a wrong TDS has been credited to your account or
it has been credited to a wrong PAN, despite it being deducted from your
salary, you can come under scrutiny.

3) Hiding interest income

Many people knowingly or unknowingly don't include the
interest income from their saving account, fixed deposits and recurring
deposits in their income tax returns. The interest from saving account up to Rs
10,000 is tax deductible under Section 80 TTA while interest on fixed deposits
and recurring deposits is fully taxable. In case of fixed deposits and
recurring deposit, a TDS will be deducted in case the interest income exceeds
Rs 10,000 in a financial year. But whether the interest is taxable or not, you
have to disclose all your interest income in your tax return. So reveal the
interest income in your return and then avail the deduction if any. Not doing
so can result in a tax notice.

4) Mismatch or concealment of income

If your actual income, expenditure or investments differ
from the one declared in your income tax return, you can get an income tax
notice under Section 143(3)/143(7). You would be asked to provide
clarifications and documents for re-calculation of your income.

Notice is issued when tax authorities are of the
opinion that you have concealed a part of your income while filing your return
of income. Penalty for concealment of income can be up to a maximum of 300 per
cent of tax payable.

The tax authorities can send notices pertaining to
years gone by as well. So it is advisable to preserve the tax records for eight
years, but where the assessee has any asset situated outside India, he should
preserve the documents for past 18 years.

5) Defective income tax return

You should be careful while filing your income tax return.
If the income tax authorities find any error they can issue a notice to you
under Section 139(9) and direct you to file a revised return on income after
correcting the error.

Top Five Reasons You Can Get an Income Tax Notice
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